ECON 206 Final

Suppose Otto enjoys having iced lattes with coffee and oat milk. If the price of coffee increases, what will happen to his demand for oat milk?

Decrease in demand.

A new assembly line robot costs $1.2 million and is expected to depreciate by 10% atthe end of next year. The real interest rate is 4.5%. What is the user cost of the robot for one year?

$174,000

In 1971, the cost of a four-year college degree from a public university was about $1,410. The consumer price index was 40.48 in January 1971. If the current consumer price index is 251.1, what is the approximate cost of the four-year degree in current dollars?

$8,746

Which of the following are mandate(s) of the Federal Reserve? (i) maximum employment (ii) stable prices and moderate long-term interest rates (iii) minimize tax fraud

(i) & (ii)

Which tasks are performed by banks? (i) pooling savings from many savers (ii) creating long-term loans from short-term deposits (iii) providing zero-interest loans (iv) printing new money

(i) and (ii)

How do government spending and tax expenditures differ? i) government spending explicitly subtracts from the federal budget, whereas taxexpenditures reduce the tax revenue available for government spending. (ii) tax expenditures allow people to keep their hard-earned income, whereasgovernment spending takes it from them. (iii) tax expenditures disproportionately benefit the poor, whereas government spendingis more helpful to the wealthy. (iv) government spending must be renewed or evaluated each year, whereas taxexpenditures renew automatically

(i) and (iv)

What tools can the Federal Reserve use to achieve its mandate? (i) forward guidance (ii) quantitative easing (iii) lowering tax rates on banks (iv) setting the federal funds rate

(i), (ii), & (iv)

Which of the following are reasons why the Fed targets an inflation rate greater than 0%? (i) enables the labor market to function more smoothly. (ii) helps avoid the risk of deflation (iii) at 0% keeps the purchasing power of consumers stable. (iv) enables the Fed to more effectively fight recessions

(i), (ii), & (iv)

In order to be considered unemployed, a person must: (i) be part of the working-age population. (ii) be actively looking for work (iii) not have been self-employed. (iv) must be noninstitutionalized.

(i), (ii), and (iv)

Which of the following are examples of automatic stabilizers? (i) funding infrastructure projects (ii) progressive income taxes (iii) unemployment insurance (iv) stimulus checks

(ii) & (iii)

Suppose the domestic price of a gallon of milk is $3.75 in the United States, and asimilar gallon of milk costs 45 yuans in China. If the nominal exchange rate is 7.08 yuans per U.S. dollar, what is the real exchange rate?

0.59

You purchase a certificate of deposit and expect an inflation rate of 1.25% over the nextyear. Your nominal rate of interest is 2.1%. What is your expected real rate of return?

0.85%

You are the Chair of the Federal Reserve Bank of the United States. The neutral rate of interest is 2%, the inflation rate is 1%, and the output gap is −1.5%. Using the Fed's rule of thumb, what is the appropriate new nominal federal funds rate that you should set for the economy?

1%

A firm should specialize in producing the good for which it has the 1. highest opportunity cost 2. comparative advantage. 3. absolute advantage 4. lowest price

2. comparative advantage.

in May 2019, Texas reported a civilian labor force of 14,012,711. The number ofemployed people was 13,516,387. What was the unemployment rate?

3.5%

When a perfectly competitive market is in equilibrium with no market failures, which ofthe following occur? 1. Efficient Quantity 2. Efficient Allocation 3. Efficient Production 4. All of the Above.

All of the above.

When is the market in equilibrium? 1. Quantity supplied equals quantity demanded 2. Every seller who wants to sell an item can find a buyer. 3. Every buyer who wants to buy an item can find a seller. 4. All of the above.

All of the above.

The supply of dollars reflects:

Americans buying imports and investing abroad.

A real exchange rate depreciation in the U.S. dollar will lead to:

Americans importing less and exporting more.

Bond A is a five-year bond issued by a company with a very good credit rating. Bond B is a five-year bond issued by a different company in financial distress. Which is MOST likely?

Bond B will have a higher interest rate than Bond A.

GDP per person in Uganda is $1,280 per year and GDP per person in Japan is $39,100. What do you think is likely to happen to each country's GDP per person if they both increase their capital per person by 20%? Which country do you expect to have a largerrelative change in its output per person?

Both Uganda and Japan's GDP per person will increase. Uganda's GDP per worker will relatively experience a larger increase.

Suppose you manage a convenience store. If macaroni and cheese is an inferior good, what do you suppose would happen to the price and quantity sold of macaroni and cheese as incomes fall during a recession?

Both the price and quantity would increase.

Which of the following policies tend to foster economic growth? 1. Establishing trade barriers to protect domestic industry. 2. Clearly defining and enforcing property rights that extend to all members ofsociety. 3. Allowing banking failures and not controlling inflation. 4. Low public investment in infrastructure

Clearly defining and enforcing property rights that extend to all members ofsociety.

What is the main barrier to consumption smoothing?

Credit Constraints

The federal government announces plans to fund research that will lower the cost ofbatteries used in electric cars. What is the effect on equilibrium price and quantity?

Decrease in price, increase in quantity.

Which transaction is NOT included in gross domestic product? 1. Francis buys ice-cream at a local grocer. 2. Julian, a public school teacher, receives a paycheck. 3. Pablo sells and ships a book to a foreign buyer. 4. Francis receives her social security check.

Francis receives her social security check.

Which of the following is a positive statement? 1. College tuition should be lower so that more people can attend. 2. Income taxes are too high, and the federal government should cut them. 3. Lower college tuition will lead to more children from poor families attending college. 4. The United States should increase tariffs on goods from Mexico

Lower college tuition will lead to more children from poor families attending college.

Which of the following is NOT a way money makes trade easier?

Money eliminates the possibility of recessions caused by demand shortfalls.

Suppose Matilda likes drinking either a sparkling water or iced tea each afternoon. How will Matilda's demand for iced tea change if the price of iced tea increases? 1. Increase in demand 2. Decrease in demand 3. Quantity demanded decreases. 4. Quantity demanded increases

Quantity demanded decreases.

Suppose Taylor has decided to start a bracelet making business. Which of these costswill not be considered in marginal decisions of how many bracelets to produce? 1. Cost of string 2. Rent for the storefront where production happens. 3. Cost of beads 4. Wages paid to employees

Rent for the storefront where production happens.

Which of the following is an example of a (macroeconomic) investment?

Research & Development

If the supply of green tea rises, the equilibrium quantity will __________,and the equilibrium price will __________.

Rise; fall.

Suppose Stella ranks her preferences for spending her free afternoon as: 1. Going to a get coffee with a friend 2. Studying for her accounting exam 3. Taking a nap What is her opportunity cost of getting coffee?

Studying for her accounting exam, and the cost of the coffee.

Suppose there was a shift in curve(s) that led to an increase in price and a decrease in quantity. What can you confidently conclude about the curves that shifted?

Supply decreased.

Suppose a farmer produces crops using water, land, and fertilizer. The price of water increases due to a drought in the region. How does this affect the farmer's decisions tosupply crops?

Supply decreases.

Microchips used in smartphones become less costly to produce. As a result,the _________ of/forsmartphones ______________.

Supply; increases.

Suppose the price is of a good is currently above the market equilibrium price. Is there a surplus or a shortage? Is quantity demanded or quantity supplied greater?

Surplus; Quantity Supplied.

Fiscal policy is especially important when

The Fed has hit the zero lower bound

Economists expected GDP to grow at an annual rate of 3%. It was recently announced that GDP grew at an annual rate of 2%. What do you expect to happen to the S&P 500?

The S&P 500 will decrease.

If drivers for ridesharing services like Uber and Lyft successfully negotiate for higherpay, and parking lot operators in the city raise parking rates, what can you concludeabout the new equilibrium in the ridesharing market?

The equilibrium price will rise, but the impact on quantity is unclear.

Which factor will NOT lead to a shift in the demand of the U.S. dollar?

The exchange rate

In the colonial era, a company was set up as a merchant trader engaging intransatlantic trade. Although the company never made any profits, the company's shareprice rose significantly in a short period of time. Then, the share price fell dramatically and returned to the original sale price. This situation describes:

a financial bubble

If there is a temporary rise in income, a consumption smoother will exhibit _____ in consumption, and a hand-to-mouth consumer will exhibit _____ in consumption.

a small increase; a large increase

During the Great Recession, the United States Congress increased the length of timethat unemployment benefits could be received from 52 weeks to 99 weeks. This change caused:

an increase in the costs for the government

Structural Unemployment is caused when wages __________ the market equilibrium,resulting in a shortage of jobs

are unable to fall to.

Seasonally adjusted data are

data stripped of predictable seasonal patterns

Tariffs on import....

decrease economic surplus

A perfectly competitive market is a market in which all firms in an industry sell an .................... and there are ................ , each of whom is ................... relative to the size of the market.

identical good; many buyers and sellers; small.

For suppliers, a ______________ is an incentive to ____________, because there are fewprofit opportunities.

low price; decrease production

The law of demand tells us that as price increases ....................... . The law of supply tells us that as price increases ................... .

quantity demanded decreases; quantity supplied increases.

If your nominal wage rises faster than the price level, we can say your real wage has_________ and the purchasing power of your income has __________

risen; risen.

The typical business cycle has a _____ recession, followed by a _____ expansion.

short and sharp; long and gradual.

The main factor that has led to the rise in international trade in recent decades is

significant reductions in the cost of international transport and communication

The largest category of federal government spending is

social insurance programs.

The proliferation of electronic book readers (kindles) led to a rise in the quantity ofbooks sold while the average price of a book fell. What do these changes in quantity tell us about how e-books changed the publishing market?

supply curved increased.

The main difference between a tariff and a quota is that:

the government does not make revenue from quotas.

Real GDP Definition

the production of goods and services valued at constant prices

An example of a leading indicator is:

the stock market.

Even though deposit insurance existed, the United States experienced a major financial crisis from 2007 to 2009 because:

there was a run on shadow banks, which were not covered by deposit insurance

Fiscal policy works best when it is

timely, targeted, temporary